Purpose and Use of Different Accounting Records

Keywords: accounting details types, accounting information uses

Accounting record is thought as the all of the documentations involved in the prep of financial statements and records which are highly relevant to financial review and audits such as recording of possessions and liabilities, ledgers, publications, and any other supporting documents like invoices.

Ledger: - Maintaining ledger is a must in every accounting system. Ledger is utilized for setting up trial balance which checks the arithmetical precision of the accounting literature. Ledger is the store-house of most kind of information which is utilized for preparing last accounts and financial claims.

Prime entry literature: - The other an example may be prime entry books which are also known as literature of original admittance are literature where deals are first saved. The main literature of prime accessibility includes sales day book, purchase day book, sales go back day publication, purchase go back day book, general journal and cash publication (Ducha, et. al, 2008).

Accounting performs important and useful role by growing the information for providing answers to numerous questions experienced by the users of accounting information. It offers information how good or bad the financial condition of the business is, which activities or products have been profitable. Accounting is very important to a small business entity for the next reasons: -

  • Accounting record, place on the base of even methods, will assist an enterprise to compare results of 1 period with another period.
  • Insulating records, backed up by proper and genuine vouchers are good evidence in a court docket of legislations.
  • Increased level of business results large numbers of transactions and no businessman can keep in mind everything. Accounting documents avoid the necessity of remembering various transactions.

Fundamental concepts of accounting

Accruals idea of accounting: Other than the cash movement assertion, the accounts have been place on an accruals basis. The accruals basis of accounting involves the non-cash of transactions to be mirrored in the financial statements for the period in which those results are experienced rather than in the time in which cash is actually received or paid (Open up School Course Team, 2006).

Going concern: The accounts have been ready on a going concern basis meaning the accounts have been prepared on a heading matter basis. It further clears that the accounts have been well prepared on the assumption that the authority will continue to operate for the near future. The Avenue account and Balance Sheet presume no purpose to significantly curtail metropolis Council's procedures (Open University Course Team, 2006).

Consistency idea: There are a number of different ways in which some principles can be applied. Each business must choose the way that gives the most dependable picture of the business enterprise, not just because of this period, but over time also. According to the consistency convention, whenever a method has been adopted for the accounting treatments of something, the same method will be adopted for all succeeding occurrences of similar items. However, it generally does not imply that the firm must follow the method until the organization closes down. (Open School Course Team, 2006).

Prudence Principles: The accounts should be wise while preparing financial statements. Quite simply, if something is in doubt, arrange for the worst and, if the transaction hasn't yet been completed ignore ant possible benefits that may arise from it (Open up School Course Team, 2006).

Business entity concept: It really is one of the key accounting key points of accounting this concept says that Business should be cared for separately from the house owner or buyer In simple words we can say owner of the business should be cared for separately from the business whatever profits come in to the business should be taken in company bank account. Under the business entity concept, the activities of an business are registered separately from the activities of its owners, creditors, or other businesses (Ducha, et. al, 2008).

  • Different factors of accounting system:

Computerised accounting system: Keeping appropriate accounting documents is a essential part of managing an organisation. Apart from helping to keep it afloat financially and legally, it is also a requirement of funding bodies. Smaller communities can usually manage with simple book-keeping techniques but bigger organizations juggling with bigger amounts of money and more complex financial transactions could find their workload eased by utilizing a computerised accounting system. The glad tidings are that we now have user friendly and reasonably priced computerised accounting deals on the marketplace that are either aimed at, or can be adapted to, voluntary sector organisations (Ducha, et. al, 2008).

Manual Accounting Systems: Accounting systems are manual or comprised. Understanding a manual accounting system is useful in identifying human relationships between accounting data and studies. Also, most computerised systems use concepts from manual systems. In other words, Manual accounting and bookkeeping systems will be the traditional form of retaining a businesses accounts and information. They require keeping various ledgers and data which typically include a cash booklet, sales and buy day literature and petty cash mattress sheets. Although the utilization of basic manual bookkeeping systems requires little knowledge or skill in accounting, they are still the preferred approach to accounting for many who have tried them before (Drew, et. al, 2000).

Considering factors when using computerised and manual accounting system:

The capacity to generate sales /increase invoices; the necessity to compute/include VAT in accounting; cost how much can a company truthfully afford on software, posts and support, the ability to process payroll, and stock control will be the considering factors of computerised accounting system.

  • Task 2

Meaning of business risk: Business risk is associated with the uncertainty of any company's future cash moves, which are damaged by the procedures of the company and the surroundings in which it operates. It's the variation in cashflow from one period to some other that causes increased uncertainty and causes the need for greater payment for investors. For example, companies which may have a long history of stable cash flow require less reimbursement for business risk than companies whose cash flows vary from one quarter to another, such as technology companies (Fabozzi, et. al, 2007).

Components of business risks:

Operational hazards: The risk of loss caused by insufficient internal processes, people and systems, or from exterior events which include legal risk. In other words, the risk of loss resulting from failure to comply with laws as well as wise ethical specifications and contractual responsibilities which include the exposure to litigation from all areas of an Institution's activities. The definition does not focus proper or reputational hazards. In other words, operational risks are worried to enhance operational risk assessment work by stimulating the industry to develop methodologies and collect data related to taking care of operational risk. Strategic and reputational risk is not one of them definition for the purpose of the very least regulatory functional risk capital charge which targets the causes of functional risk and the Committee thinks that this is appropriate for both risk management and, inevitably, dimension (Fabozzi, et. al, 200).

Compliance Risks: Conformity risk can be defined as the existing and potential risk to income or money arising from violations of, or non-conformance with, regulations, rules, approved methods, internal insurance policies, and methods, or moral criteria which arises in situations where the laws or rules prevailing certain loan company products or activities of the Bank's clients may be unclear or unverified. This risk exposes the organization to fines, civil money punishments, payment of injuries, and the voiding of deals (Fabozzi, et. al, 200).

Liquidity hazards: Liquidity risk can be explained as the current and nearing risk to cash flow or capital arising from a bank's incapability to meet its responsibilities when they come scheduled without incurring unacceptable losses. Liquidity risk includes the inability to control unplanned decreases or changes in money sources. Liquidity risk also arises from the failure to recognize or solve changes in market conditions that impact the capability to liquidate belongings quickly and with minimal reduction in value (Neu, and Malz, 2007).

Meaning of risk management: The true connotation of managing the potential risks is combined with activities of real human wherein the recognition of the risk, risk evaluation, adapting techniques to take care of it and lessening of risks by using managerial strategies is performed. The various ways in creating risk management includes moving the possible risk to other group, preventing the chance from going on, lessening the risk's unwanted effects and recognizing all the consequences a specific risk might bring (Blokdijk, 2007)

Corporate governance

According to Cadbury Report, Corporate governance is 'the system where companies are directed and controlled where in fact the role of the shareholders is to appoint the directors and the exterior auditors, and also to satisfy themselves an appropriate governance composition is set up where directors are accountable for setting the business's strategic seeks, providing the command to place these into impact, supervising the management of the business enterprise and reporting to shareholders on the stewardship. Corporate and business governance involves a set of romantic relationships between a company's management, its table, its shareholders and other stakeholders. Commercial governance also provides the structure by which the goals of the company are place, and the means of attaining those goals and monitoring performance are established. (Gupta, 2005)

  • Cadbury code:

The Cadbury Survey, officially entitled 'The Record of the Committee on the Financial Aspects of Corporate Governance' was printed in Dec 1992, following the tips of the Cadbury Committee. The establishment of the Committee in May 1991 by the Financial Reporting Council, the London STOCK MARKET, and the accountancy career arose in response to the event of financial scandals in the 1980's regarding UK outlined Companies, which experienced resulted in a street to redemption in investor assurance in the quality of company's financial reporting (Cadbury, 1992).

Fraud Risk Assessment

To be protective of itself and its stakeholders efficiently and effectively from fraud, a business should recognize fraudulence risk and the precise risks that directly or indirectly relate with the business. A structured scam risk assessment, designed to the organization's size, intricacy, industry, and goals, should be performed and updated periodically. The evaluation may be included with an overall organizational risk diagnosis or performed as a stand-alone exercise, but should, at a minimum, include risk id, risk possibility and significance examination, and risk response (ww. acfe. com/documents/managing-business-risk).

  • Managing the risk of fraud, the risk based methodology:

A risk-based strategy enables organisations to focus on their resources, both for increasing controls as well as for pro-active diagnosis, at problem areas. Developments in corporate governance, including the requirement for claims on inside control, create the atmosphere in which fraud can be viewed as as a set of hazards to be been able alongside other business risks. Managing the chance of fraud should be inserted in the entirety of your organisation's risk, control and governance types of procedures. In wider sense, examining and managing the chance of fraud involves examining the organisation's overall contact with scam, recognising the areas most susceptible to the risk of fraudulence, assigning ownership, calculating the scale of fraudulence risk, giving an answer to the risk of fraudulence; and identifying the success of the fraud-risk strategy (ww. acfe. com/documents/managing-business-risk).

Assessing the Organisation's Overall Vulnerability to Fraud: Vulnerability to fraud can be assessed at different levels within an organization where a quick evaluation of the overall level of risk an organisation is subjected to is usually a good starting point and may highlight particular vulnerabilities where some action must be studied immediately rather than await the results of a more in-depth risk diagnosis to be completed. A fraudulence risk examination should on top of that be completed through the development of any new regulations, activities or procedures to see whether any new dangers arise that require to be maintained. The risk diagnosis should also be assessed and re-assessed every time a change in plan occurs or when changes are created to how a policy is usually to be executed (ww. acfe. com/documents/managing-business-risk).

Fraud risk identification may include gathering external information from regulatory bodies, industry options, key guidance setting categories), and professional organizations, the American Institute of Certified Public Accountants (AICPA), the Association of Certified Fraudulence Examiners (ACFE), the Canadian Institute of Chartered Accountants (CICA), The CICA Alliance for Excellence in Investigative and Forensic Accounting. Interior sources for determining fraud risks will include interviews and brainstorming with personnel representing a broad spectrum of activities within the business, review of whistleblower issues, and analytical strategies. An effective and working fraud risk id process includes an calculation of the bonuses, stresses, and chances to commit fraudulence. Employee incentive programs and the metrics on which they are based mostly provides a map to where scam is most probably to occur. Fraudulence risk assessment should think about the override of adjustments by management as well as areas where handles are poor or there is a insufficient segregation of duties (Vallabhaneni, 2008).

The speed, efficiency, and availability that created the substantial benefits of the information age have also increased an organization's contact with scam. Therefore, any fraud risk assessment should think about access and override of system settings as well as inner and external threats to data integrity, system security, and robbery of financial and sensitive business information (Costa Lewis, 2004).

Assessing the chance and need for each potential fraud risk is a subjective process which should consider not only monetary relevance, but also value with an organization's financial reporting, businesses, and reputation, as well as legal and regulatory compliance requirements. An initial assessment of scams risk should consider the inherent risk8 of a specific fraud in the lack of any known adjustments that may solve the chance.

  • Risk assessment
  • The control environment
  • Control activities
  • Information and communication
  • Monitoring (Costa Lewis, 2004).

THE COSO MODEL: In the United States many organizations have adopted the inner control concepts existing in the survey of the Committee of Sponsoring Organizations of the Tread way Commission rate (COSO). Posted in 1992, the COSO statement describes inside control as: An activity, influenced by an entity's table of directors, management and other personnel, made to provide reasonable confidence regarding the achievements of targets in the next categories:

  • effectiveness and efficiency of businesses,
  • reliability of financial reporting, and
  • Compliance with suitable regulations.

COSO describes internal control as comprising five essential components. These components, that are subdivided into seventeen factors, include:

  • The control environment
  • Risk assessment
  • Control activities
  • Information and communication
  • Monitoring (Vallabhaneni, 2008).

Duties and duties of auditor

In most countries the auditor has a statutory obligation to produce a are accountable to the entity's associates on the truth and fairness of the entity's annual accounts. As we have seen in this section, this article must state the auditor's view on if the assertions have been ready in accordance with the relevant legislation and whether they provide a true and good view of the loss or profit for the year and situation at the entire year end. The duty to article on the truth and fairness of the financial statements is the principal duty associated with the external audit.

The auditor has a responsibility to create an judgment on certain other concerns and to record any reservations. The auditor must consider whether:

1. The entity has held proper accounting documents;

2. The entity's balance sheet and income affirmation agree with the underlying accounting files;

3. Everything and explanations that the auditor considers essential for the purposes of the audit have been obtained and whether adequate returns because of their audit have been received from branches not stopped at through the audit;

4. The entity has complied with the relevant legislation's requirements in respect of the required disclosures. When the entity has not made all the disclosures required the audit statement should, if possible, contain a assertion of the required particulars (Vallabhaneni, 2008).

Relationship between internal and external audit

The coordination of inside audit activity with exterior audit activity is very important from both items of view: from external audit's point of view is important because, in this manner, external auditors hold the possibility to improve the efficiency of financial assertions audit; the relevancy from interior audit's point of view is promised by the fact that this coordination assures for the internal audit a plus of essential information in the evaluation of hazards control

The role of internal auditing depends upon management, and its objectives differ from those of the external auditor who's appointed to report independently on the financial statements. The inner audit function's targets vary regarding to management's requirements. The exterior auditor's primary concern is if the financial assertions are free of materials misstatements; the external auditor should get yourself a sufficient understanding of inside audit activities to recognize and assess the potential risks of materials misstatement of the financial claims and also to design and perform further audit methods. The exterior auditor should perform an diagnosis of the inner audit function, when interior auditing is relevant to the external auditor's risk assessments. Liaison with internal auditing is more effective when meetings are held at appropriate intervals during the period. The exterior auditor would need to be recommended of and have usage of relevant inside auditing reports and become kept informed of any significant subject that comes to the internal auditor's attention which may affect the task of the exterior auditor. In the same way, the exterior auditor would typically inform the internal auditor of any significant matters which may impact inner auditing (Diamonds, 2002).

Appropriate audit tests

Meaning of audit test: An audit test is an operation performed by either an external or internal auditor in order to assess the accuracy of various financial record assertions. The two common categorizations of audit exams are substantive tests and exams of internal controls. Both types of checks are being used in external and interior audits to be able to reach established audit aims, as can be defined in audit checklists or identified based on the results of audit questionnaires. Audit testing typically are performed on a sample basis over an existing group of similar deals. Sampling methods can either be statistical or non-statistical, with the ultimate goal being to obtain the most representative sample of the population before testing begins (Stone, 2002).

  • Types of audit tests

It is vital for internal auditors to comprehend how this method works, as well as its purpose. Also, given all of the testing methods that may be used through the audit process, it helps to distinguish sampling from other styles of examination. Discovering the characteristics that distinguish sampling as a distinctive form of assessment provides good understandings for beginning auditors to know why it is used under certain circumstances and determine when to hire this process. During an functional audit, an internal auditor might use observation as an assist in analyzing a unit's methods (Diamond, 2002).

Simple Random Sampling: - In auditing, this system tactics sampling without replacement unit; that is, once an item has been decided on for testing it is not included in human population and it is not subject to re-selection. An auditor can execute simple arbitrary sampling in another of two ways: computer programs or random number tables (Beasley, et. al, 2005).

Systematic (Interval) Sampling: - This technique describes the choice of test items in such a way that there is an unchanging period between each test item. In this technique, every "Nth" item is determined with a arbitrary start (Beasley, et. al, 2005).

Stratified (Cluster) Sampling: - This method describes selecting test items by breaking the populace down into strata's, or communities. Each stratum is then treated separately. Because of this strategy to be effective, distribution within clusters should be greater than circulation among clusters. An example of cluster sampling is the addition in the test of all repayments or cash disbursements for a particular month. If blocks of homogeneous examples are chosen, the sample will be subjective (Beasley, et. al, 2005).

  • Audit tests

Process mapping evaluation: Develop process maps of the provider delivery and accounts payable/ endorsement operations and analyse these maps to recognize prospect of suppliers to won't deliver supply

Survey techniques: Execute a supplier satisfaction survey to identify details, magnitude and exterior perspective of distributor concerns above the accounts payable process.

Analytical review: Perform benchmarking analytical assessments to compare key process working statistics with industry guidelines and compare specific operations with best practice process.

Inquiry through facilitated organizations: Carry out a emphasis group including several major suppliers, key members of the accounts payable process and major departments required to authorize invoices (Beasley, et. al, 2005).

Difference between management and auditor's tasks:

In sizeable certainty, management's responsibility is to produce internal control. Interior control includes the whole system of settings and techniques, both economic and operational, which can be established to lessen risks and their impact, guard belongings, and ensure efficiency and encourage devotion to University guidelines and directives where, it is Internal Audit's role to carry out an independent analysis of the efficiency of these adjustments. Audit is not part of range management where inside audit does not grow and set up procedures, make records or involve in virtually any activity that could compromise its freedom (Wilkinson, et. al, 2008).

Audit planning: First audit planning takes place before the thorough audit work begins, and in planning for a specific audit task an auditor must undertake a plan in regards to to the timing, aspect and amount of the audit work to be completed. The aims of the program are to ensure proper attention is dedicated to the different areas of the audit and potential problems are diagnosed. On the other hand, audit plan need to be detected as a sorted out plan of action plotting out the audit operations to be completed with the aim of reporting on whether a stated set of accounts show a factual and fair-minded view. However, the fact that the audit task is the commercial motion of the audit company should be accepted, and if the expenses of undertaking the planned types of procedures are likely to exceed the client entities budgeted fee then this unevenness should be up to date at the planning stage by talking about with the management of the entity (Gupta, 2009).

Scope of audit planning: It is importance to keep in mind the formal range of audit work when considering audit's role in risk management. Predicated on the results of the chance assessment, the internal audit activity should evaluate the adequacy and performance of settings encompassing the organization's governance, functions, and information systems which should include stability and integrity of financial and operational information. Effectiveness and efficiency of procedure, Safeguarding of resources, compliance with laws and regulations, regulations, and deals are the opportunity of audit planning (Spencer Pickett, 2006).

Audit trials: Direct testing of account amounts and transactions are designed by deciding the most efficient manner to substantiate the assertions embodied in the consideration or transactions. There are various alternatives available to the auditor in planning audit testing. Listed below are the types of audit checks.

Tests of efficiency: It is vital to determine if the controls are effective over cash disbursements. Make use of the information performing a audit of control buttons and account balances.

Dual-Purpose Assessments of Controls and Account Amounts: It really is beneficial to determine whether the controls work to help plan the type, timing, and degree of other audit assessments, and test the exactness of recording the related ventures.

Substantive Analytical Assessments: It is essential to determine whether account associations meet expectations, including the possibility that some of the receivables aren't collectible.

Direct Exams of Account Amounts: It is essential to check the presence and dollar correctness of account amounts as stated at historical cost.

Direct Exams of Trades: It is essential to check the lifestyle of sales transactions (Gramling, et. al, 2009, Auditing: A company risk, Cengage Learning Posting (Gupta, 2009).

Evidences that auditors collect from audit files and working documents: A couple of 7 broad types of evidence that the auditor can pick which can be physical assessment, confirmations, records, analytical information, written representations, numerical evidence, oral facts, and electronic facts(Online resource: accessed at 20th May 2010, www. issai. org/media).

Audit files and testing paperwork:

Working documents provide evidence an effective, effective, and economic audit has been carried out. They ought to therefore be prepared carefully and skill.

Importance of working papers: Working documents are important because they're necessary for audit quality control purposes provide confidence that the work delegated by the audit spouse has been properly completed provide research that a powerful audit has been carried out increase the current economic climate, efficiency, and effectiveness of the audit contain sufficiently detailed and up-to-date facts which justify the reasonableness of the auditor's conclusions retain a record of concerns of continuing significance to future audits(Online reference, seen at 18th May 2010: www. accaglobal. com/pubs/students).

Meaning of Statutory Audit

Statutory Audit is a checking of accounts required by law where a municipality may be needed by its own law with an twelve-monthly audit of financial documents or a corporation which is governed by any Regulation, the Law may require the audit to be conducted and the way in which where audit should be conducted also to whom the statement of auditors should be provided (Stittle, 2003)

  • Statutory Audit Report

Statutory Auditors' Survey is prepared in accordance with Article L(225-235) of the France Commercial Code, on the survey made by the Chairman of the Supervisory Table of Peugeot S. A. , on the Internal Control procedures relating to the preparation and control of financial and accounting information(Stittle, 2003).

  • Purpose of statutory Audit Report

The purpose of Statutory Audit Article is to present the fair demonstration and the steadiness with the financial statements of the info given in the Management Report of the Mother board of Directors, and in the documents tackled to the shareholders with respect to the budget and the financial assertions; the fair display of the info provided in the Management Survey of the Plank of Directors in respect of remuneration and benefits awarded to certain company officers and some other commitments made in their favour regarding the, or after, their appointment, termination or change in function(Stittle, 2003).

  • Contents of Audit Report

The themes of audit report are subject, addressee, opening or Introductory Paragraph, Range Paragraph, judgment paragraph, signature, host to signature, and time frame of survey. Auditor's view of any financial statement, given without any reservations, such view quite simply state governments that the auditor seems the company used all accounting guidelines properly and that the financial studies are a precise demonstration of the company's financial condition opposite of certified point of view(Stittle, 2003).

Statutory audit record: The Audit Commission's auditors concern two types of statutory studies:

  1. reports in the general public interest (RIPIs) given under Section 8 of the Audit Commission Act 1998
  2. immediate recommendations to the Secretary of Express granted under Section 19 of the Audit Percentage Act 1998

Reports in the general public interest

Where issues are serious and an auditor decides a matter should be brought to the interest of the public he does indeed this by issuing a written report under S8 of the Audit Payment Act 1998

This article is released to medical body worried and copied to the Secretary of Talk about. It really is for medical body concerned to get this to public and to respond to the report as well as for the NHS Executive to ensure they do so( Sangster, and Timber, 2008)

Qualified and unqualified statement:

An unqualified report is a report from an unbiased auditor that has analyzed the accounting details and found no irregularities which has the next demerits

a) Insufficient consistent software of generally accepted accounting principles

b) Substantial question about heading concern

c) Auditor agrees with a departure from promulgated accounting principles

d) Emphasis of your matter

e) Reports relating other auditors

A Qualified Impression report is supplied when the auditor fulfilled 1 of 2 types of situations which do not comply with normally accepted accounting key points, however the remaining monetary statements are properly presented. This sort of judgement is very equally to a unqualified or "clean opinion", but the report says that the financial statements are plainly presented with a certain exception which is normally misstated. The two types of situations which would cause an auditor to issue this opinion above the unqualified view are:

Single deviation from GAAP this kind of qualification occurs when a number of regions of the financial assertions do not conform to GAAP, but do not have an effect on all of those other financial claims from being reasonably presented when taken as a whole. (Accounting Standards Plank, 1988)

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